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The Difference Between a Traditional and Roth IRA

What is the difference between a Traditional and Roth IRA?

David Murphy, VP of Finance and Risk, explains the difference between a Traditional and Roth IRA, and how MMCCU can help with this complicated subject….

While on the surface it may appear Traditional and Roth IRAs (Individual Retirement Accounts) are the same product, the main difference between the two lies in the tax treatment for both products.

Contributions to Traditional IRAs may be subject to special tax treatment under the IRS rules including eligibility for a tax deduction.  Contributions to Roth IRAs are not deductible.  With both IRAs, there are limits to how much and if you can contributed based on your adjusted gross income and, in the case of Traditional IRAs, participation in other retirement savings plans.  There is also a difference in when you must take distributions from your IRA depending on if it’s a Traditional or Roth IRA.

While Roth IRAs do not require you to take distributions upon reaching a certain age, owners of Traditional IRAs must begin taking an annual Required Minimum Distributions no later than April 1 in in the year following when you turn 72.

The qualifying age recently changed with the passing of the Further Consolidated Appropriations Act of 2020, which contained provisions for the SECURE Act signed into law by President Trump on December 20, 2019.

Who benefits most from each type of IRA?

While both types of IRAs have their advantage, the best way to determine which product works best for your financial situation is to talk to your tax advisor or financial planner to truly understand the nuances of each product.  While we can offer IRA accounts and provide general information, we cannot offer tax advice.

In general, contributing to an IRA allows you to grow money earmarked for retirement tax-free until distribution.  There are exceptions the IRS provides to when distributions from your IRA may be penalty-free, and again, your tax advisor would be the best resource to provide that guidance to you.  One caveat for a Roth IRA is you may take distributions anytime tax and penalty free provided the amount is equal or less than your contribution.

How can MMCCU help with IRA’s?

We provide Traditional and Roth IRAs to our members looking to build up their retirement savings outside of what they may already contribute to a 401(k) or 403(b) plan.  We offer liquid IRA savings accounts and IRA certificates, and depending on when/if you would need to access the funds in your IRA, both the liquid IRA savings and the term IRA certificates have their advantages.

We also coordinate Required Minimum Distributions (RMDs) and ensure they are handled properly for our members required to take money from their IRA accounts.  If you’re close to retirement, one consideration for members is to request a 401(k)/403(b) to IRA direct rollover, which would remove your funds with your work retirement plan and deposit the funds at the credit union.

As a federally-insured financial institution, the deposits of our members are insured up to $250,000 (more depending on the type of account), so you can worry less about the safety of your retirement funds if they are deposited with us.  Our financial service officers are ready to address your needs and help assist in setting up your IRA today.

We also work with FocusTax Solutions out of Brookfield.  Their representative, Kenneth Courts, is on site during the tax filing season to file tax returns for our members, but he can also provide financial guidance and the impact a change to your finances can have on your overall tax liability.

Remember, it’s never too late or too soon to start saving for retirement! For more information, contact MMCCU at (715) 387-8686.

Meet Caroline Retzlaff

Caroline A Retzlaff has been with MMCCU since 2004. She is originally from Kennan, WI, and first took a cashier course from Rosemount Technical School in Rosemount, MN. She also has attended Diesel Truck Driving School with Schneider Transport In Green Bay, as well as studied Phlebotomy and Medical Terminology at Mid State Technical College in Marshfield.

She was able to be a Team Driver with her husband, Richard, for Schneider Transport from 1990-1998, during which time they traveled throughout all 48 states.

Her favorite part of the job is working with the members. “I enjoy all the wonderful members that I assist everyday,” she said.

In her free time, Caroline enjoys spending time with her family, including sons Kenneth & Keith, grandsons Dylan & Silas, and Ken’s significant other, Liza. She also enjoys antiquing, bowling, casinos, fishing, and traveling to new places. She also loves rock music, and was a nine-year 4-H member, so loves attending the Marshfield Fair and others.

Throughout 2020, we’ll be introducing you to the MMCCU team members as we celebrate their work anniversaries!

MMCCU Proud Supporter of UWSP at Marshfield Marauder Basketball Team

Go Marauders!

MMCCU is a proud supporter of this year’s UWSP at Marshfield Men’s Marauder Basketball team, where our very own Ethan Posteluk is a player! Thank you to the team for this plaque, which we are proudly displaying in our lobby.

Cheer on the team in-person – find their schedule here!

Plaque

What to Know About Saving for Retirement

It’s easy to believe there’s never a good time to start setting aside money for retirement. Perhaps you’ve recently graduated from college and you have student loan payments to make, or you are looking at purchasing your first home and are trying to save for a down payment. Perhaps you had your first child and are working through the expenses of raising a child.

There’s always plenty of life to get in the way of saving for retirement. However, a dollar saved today can yield so much more in retirement through the power of compound interest. $1,000 invested at age 25 earning an 8% return will be give you $21,724.52 at age 65.

“As the old adage goes, the best day to start saving for retirement was yesterday. The second best day to start saving is today,” said David Murphy, VP-Finance & Risk. “Any day you’re able to set aside money for retirement or for the future is a positive step in your financial well-being. Saving $1,000 at age 45 earning an 8% return will still give you $4,660.96 at age 65. While your investment hasn’t had time to generate the higher earnings as displayed in the example saving at 25, your $1,000 is still giving you more in retirement than saving nothing at all.”

How Much to Save for Retirement

“The amount to set aside from each paycheck boils down to how much money you wish to have when you retire,” said Murphy. “Your best bet may be to speak to an investment advisor to walk you through your plans during retirement, to account for unknown expenses, like health care, and to come up with a target balance for your retirement plan at your target retirement date.”

“Once you know how much you wish to have saved up, you can work backwards based on assumption of how many years you plan on working and what rate of return you anticipate earning on your savings to determine how much you need to save each paycheck,” he added. “If your employer offers a 401(k) or 403(b) plan, you may have access to planners or planning tools to help you make these calculations.”

There are several factors to consider when determining target retirement savings. Questions to address include: Will you be traveling in retirement? Will you be a snowbird and live your winters down south while spending summers up north? Will you continue to own a home, or will you downsize to a condo or an apartment? Do you anticipate health issues and think you’ll need more money set aside to cover health expenses?

What Does MMCCU Offer for Retirement?

MMCCU offers Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs) to help save for the future and to account for the ever-growing costs of health care.

“Both products have tax advantages tied to them, but you will want to speak with your tax advisor to determine if these accounts can help you lower your tax liability,” said Murphy.

“In addition to the products discussed above, we’ve partnered with FocusTax Solutions based out of Brookfield and work with Neufeld Capital Management locally to provide educational seminars to help prepare individuals for retirement, what to expect with health care, and how to navigate Social Security and Medicare,” he added. “You can check with us to see when the next workshops are occurring, or feel free to reach out direct to Chris or Deanne at Neufeld Capital Management for more information.”

Buying And Selling a House at the Same Time

Selling and Buying a House Simultaneously

By Jerry Litwaitis, VP of Lending

What should be the first step financially that someone takes when they are ready to sell their home and buy a new one?

You should contact the credit union and set up an appointment to go over the process with me. The credit union can determine how much you will be netting from the sale of your current home.

We can determine how much you can afford to spend on your new home, how much of your sales proceeds from your current home you want to use as a down payment on your new home and then determine what program, terms and interest rate you will qualify for. You can sell your current home and buy a new home at the same time.

You will need to set up the closing on the sale of your current home prior to the closing on the purchase of your new home, this can also be done the same day (close on the sale of your current home in the morning and then close on the purchase of a new home in the afternoon).

This way, you will have your down payment funds from the sale of your current home to use on the purchase of your new home. Your credit union and real estate agent, if applicable, can help you with setting up the times and dates to accomplish this.

Can you buy a new home before you sell your old one?

This all depends on your affordability. Can you afford to have two mortgage payments until your current home sells? Even if your plan is to sell your current home as soon as possible after purchasing a new home, you still need to be able to afford both mortgage payments along with any additional debt you may have, until your current home sells. Not an easy task, but it can be done. Set up an appointment with the credit union to see if this is an option for you.

What loan options are available for people buying and selling at the same time?

If you will be selling your current home before purchasing a new home or selling and buying on the same day, a conventional or non-conventional mortgage is all that is needed on the new home. If you want to buy a new home prior to selling your current home and you need the equity in your current home to use as a down payment you will have to be able to afford two or more mortgages to tap the equity in your current home.

Example: You owe $70,000.00 on your current home and you will be selling your home for no less than $100,000.00. After real estate agent fees and closing fees, you will be netting $20,000.00 from the sale. In order to get the $20,000.00 equity in your current home, you would need to refinance your existing house for $90,000.00. $70,000.00 would be used to pay off your existing home mortgage and the $20,000.00 would be used for the down payment on your new home mortgage. This refinance of your current home is what is commonly called a “bridge loan”. Keep in mind that you will now have two mortgages to pay for until your current home sells. The $90,000.00 on your current home and the mortgage on your new home. You could also take out a second mortgage on your current home for $20,000.00 to use as the down payment for the purchase of a new home, however, you will now have three mortgages to pay for (your first mortgage on the home your are trying to sell, a second mortgage for $20,000.00 on the home you are trying to sell and a mortgage on the new home). Again, this will all be based on your affordability.

What happens to your mortgage when you sell your house and buy another?

The mortgage loan on the house that you sell is paid off with your financial institution and the lien on your house is satisfied with the county register of deeds office (a satisfaction of mortgage is prepared and recorded with the county to release the financial institution’s lien on your house). When you purchase a new home, the financial institution will file a separate mortgage with the county register of deeds office on the new property.

Contact MMCCU with any questions!

Share-A-Bear at MMCCU to Support Children’s Miracle Network

During the holiday season, Marshfield Medical Center Credit Union (MMCCU) is participating in the Children’s Miracle Network (CMN) “Share-a-Bear” program. Participants can sponsor a comfort animal for a sick or injured child for only $10, with the stuffed animals purchased locally being sent to children at Marshfield Children’s Hospital.

Aside from the comfort animal donation, there are also opportunities to donate any dollar amount. $1 provides a “bravery bead” for a child that has conquered a difficult oncology procedure or is celebrating a medical milestone. $5 supports a meal ticket for a family that is spending extended time at the hospital or at the hospital unexpectedly. $10 provides a distraction toy to help a child reduce stress and cope through a procedure. $20 supports a gas card to a family in need for frequent trips to Marshfield Children’s Hospital.

“It helps little kids in the hospital,” explained Tabitha Forman, receptionist. “They get a comfort animal to hold while they are having something done or staying at the hospital.”

“CMN is CUNA, our trade association’s, charity, so thousands of credit unions participate throughout the course of the year.” added Carol Adler, MMCCU president. “Tabitha spearheads it here locally and keeps it going.”

Thanks to credit unions across the country and the money raised, CMN Hospitals have been able to purchase more life-saving equipment and provide more services resulting in world-class care for sick and injured children throughout the U.S.

MMCCU has hosted a “Share-a-Bear” campaign for more than twenty years. Visit their location on West Upham to see their Children’s Miracle Network tree and donate to the cause.

December Gift Card Sale Returns

Our annual gift card sale returns this December! This year, 50 cents from every purchase will be donated to our neighbors at Grant Elementary School. Stop in during open hours to get yours or to learn more!

These make great gifts!

What to Know About Paying For College

Paying for college can be challenging, but the team at Marshfield Medical Center Credit Union is there to help. (Read some college savings tips HERE.)

“Depending on the year in school, students are capped at how much they can borrow from the Federal Government for student loans,” said David Murphy, VP-Finance & Risk. “Private student loans can help fill in the gaps between tuition costs and the amount a student and their family can cover through Federal student loans, grants and scholarships, and their own savings.”

As with all student loans, borrowers must analyze whether private student loans are a good option for helping cover these costs or if the terms and conditions of a private student loan are not helpful to the student in the long run.

MMCCU partners with Sallie Mae’s Smart Option Student Loan program to help provide an option to students who are in need of student loans in addition to what is available through the Federal Government.

“While we are presently unable to offer student loans to our members, we acknowledge our members are in need of student loan options, and the Smart Option Student Loan program is a responsible option for students and their members to consider,” said Murphy.

Once students have exhausted funds from grants and scholarships and available borrowings from Federal student loans and savings accounts, the Smart Option Student Loan fills in the gaps between tuition costs and the amount available to the student.

The student (or parent if they are applying for one of their Parent loans) would be referred over to Sallie Mae and would apply for a student loan through the program.  If approved, Sallie Mae would receive certification from the school the student is attending as to the cost of tuition, as borrowers are eligible to borrow up to 100% of the cost of attendance.

Once certification has been transmitted, Sallie Mae would remit funds directly to the school to cover the outstanding tuition balance, and the student would work with Sallie Mae to pay back the borrowed funds.

“The product offers competitive advantages over other private student loan programs with competitive rates and little to no fees charged,” said Murphy, adding that students and their families need to consider the long-term effects of borrowing to pay for schooling.

“In some situations, borrowing through student loans to pay for college is a feasible option to students and can provide an opportunity to advance their career prospects at a reasonable cost.  In other situations, the career trajectory doesn’t line up with the cost to attend the school the student is considering,” he said. “As always, we caution students and their families to weigh all options available before applying for student loans and to remain fiscally responsible in these decisions.”